Increasing Rates for Your Existing Clients
Wherever you live and wherever you do business in the world, you will have noticed a major uptick in inflation in 2021 and especially in the recent months of 2022. In an industry with very high added value and with limited direct costs like translation and interpreting, it is not immediately self-evident that some of us may need or want to raise our rates, too.
While your direct business costs of translating or interpreting a sentence are likely comparatively low, they do exist, and they are most likely rising. What is even more important is your indirect cost, namely the cost of living. It is a fair assumption that, in addition to any other noble aspirations in your professional life, you do your day-to-day work in order to make a living, and that is precisely what has been getting more expensive. You may simply need to pay yourself more for your time to keep up with inflation. Otherwise, you risk suffering a drop in your standard of living, which would arguably be unfair to you, especially when you consider that you are a more experienced professional now than you were a year ago.
The “Dual Entitlement” theory proposes that sellers (in this case, you) are entitled to a fair level of profit, and that they should expect to maintain that level of profit even if their costs increase. At the same time, buyers are entitled to a fair price, according to the theory. While fairness in pricing may be very difficult to define using objective metrics, fairness perceptions can be managed. You can do that by anticipating your clients’ reactions to your planned price hike and by framing it accordingly. “Explain, explain, explain and disclose, disclose, disclose,” Bill Clinton said on the issue of soaring drug prices when speaking to an audience of healthcare executives at a 2015 conference.
Increasing your rates when quoting and selling to new buyers is comparatively easy. You do not have an existing relationship with them. You have not set any expectations in the past that now need to be updated.
It’s a different matter with existing customers who have gotten used to a certain price level from you. Now, do you owe them an explanation when you have decided to raise your rates as Mr. Clinton suggested to the pharmaceutical industry? Unlike the executives, you probably can’t be suspected of price gouging; your market power as an individual translator or interpreter in a fragmented market likely wouldn’t allow you to engage in that kind of behavior. But even so, whether or not you should explain why you are increasing your prices depends.
If you see the relationship with your client as purely transactional (for example, because the volume of work you receive from them is limited), then the answer is probably “no,” and a simple take-it-or-leave-it announcement of the new rates along with the date they will take effect may suffice.
On the other hand, if you have spent considerable time and effort building that business relationship and want to maintain it into the future, a brief explanation of the reasons behind your move or perhaps even a round of negotiations and willingness to find some middle ground can go a long way in helping solidify your case for fairness (and for your fair profit, as explained above). This is especially true if your customers subscribe to the idea of fair or sustainable vendor relationships.
The recent wave of inflation has primed buyers across industries for imminent price increases, and these may trigger less of an outcry than they would at normal times. Price increases may now require less detailed explanations, if any at all, as we are all facing the same issue and we can all relate. So, if you have been swallowing creeping cost increases over the years in addition to the recent explosion of inflation and if you have been compensating them from your profits (and possibly also some productivity gains, such as through technology), now may be the best time in a long time to increase your prices.
While inflation is a cost-based factor, any successful pricing strategy will take into consideration not only the costs but also the value your service or product creates for your customer and the competitive environment of the industry.
When deciding whether to raise your rates due to inflation, you should not lose sight of how much your work is worth to any one of your customers, which roughly corresponds to their “willingness to pay.” Aside from an objective business value, value perceptions may be just as important in framing a price increase and cultivating your value proposition. Either way, however, a rational buyer will never spend more than the product is worth to them, whether it is in objective terms or in terms of perception. Your price hike may or may not get over that threshold and it takes some knowledge of your customer and their line of business to make that call.
It is also crucial to stay up to date with what the industry as a whole and, especially, your direct competitors are doing. While you can’t make an agreement with them as that would be collusion, which is punishable by law, a healthy dose of competitive intelligence can be very helpful in your decision-making. You may also have noticed how keen many business owners and industry association representatives are to be featured on television and quoted in news articles explaining the cost increases they are facing in their respective businesses and industries. Committing to a higher price through a strong signal such as a public announcement in the press is a creative solution that helps alleviate some competitive pressure without amounting to an illegal act.
On the note of collusion, I urge you to review ATA’s Antitrust Compliance Policy if you haven’t recently, not to discuss any specific pricing issues with fellow ATA members openly and/or in ATA forums, and not to take any concerted action. As always, this article outlines factors to consider and does not offer any guidance on what you should do in your specific business situation.
About the Author
Daniel Sebesta has been a linguist since 2003. He holds an MBA degree with a specialization in pricing and strategy and is a Certified Pricing Professional and a member of the Professional Pricing Society. In addition to his translation work, he consults with companies on pricing, profitability, and adopting language technology. He is a former administrator of ATA’s Language Technology Division and a former chair of ATA’s Divisions Committee
Subscribe to Next Level
Have an idea for us?
If you have feedback or ideas for future articles, contact the Business Practices Committee.
Thanks, Daniel. Some very thoughtful insights there!
A great and inspiring read, thanks, Daniel!
Thank you, Daniel!
I like your article, Daniel. Thanks for writing it. It comes to confort me in the idea I had decided to implement for my customer, thou I hadn’t found the words yet to explain this price increase I am anticipating.